The Abe administration is considering abolishing a special tax break for small and midsize companies at the end of March in order to finance the corporate tax cut promised the prime minister has promised.
The move is expected to draw criticism that the administration is giving preferential treatment to big firms while increasing the burden on smaller companies, analysts said.
The special tax break was introduced in the wake of the global financial crisis triggered by the Lehman Brothers collapse in September 2008.
Under the current law, the national corporate tax rate for companies with an income of ¥8 million or lower is set at 19 percent, compared with 25.5 percent for large firms. Since the fiscal year that began in April 2009, the 19 percent tax rate has been cut to 15 percent as a temporary measure.
In the fiscal year that ended last March, around 660,000 companies were subject to the special tax break, reducing the central government’s corporate tax revenues by about ¥96.1 billion, according to the Finance Ministry.
Some officials have argued that the corporate tax rate for smaller firms should be raised to 19 percent so the government can increase its tax revenue by around ¥100 billion.
The Abe administration has pledged to cut the 35 percent effective corporate tax rate — consisting of national and local taxes — to below 30 percent within a few years from fiscal 2015. But it has yet to decide how fast to implement the cuts and how it will cover a possible decline in overall revenue.
A cut of 1 percentage point in the corporate tax rate reduces government revenue by an estimated ¥470 billion, the Finance Ministry said.
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